If you are feeling overwhelmed by your debt and unable to manage payments, it’s time to consider a debt management plan.

These plans are repayment tools. They put you on a structured timeline to eliminate your debts over a period of three to five years. In most cases, the debt targeted by a debt management plan is credit card debt.

Debt management plans consolidate your outstanding debts from different accounts into a single monthly payment with a reduced interest rate. This monthly payment will depend on how much debt you must pay off within those three to five years.

So is a debt management plan right for you? Read on to learn more.

5 Benefits of a Debt Management Plan

Here are five of the main benefits of a debt management plan.

#1 A Single Payment

When you enroll in a debt management plan, you will work with a credit counseling agency. The agency will send your single monthly payment to your creditors for you.

Debt management plans consolidate payments from multiple accounts into a single payment, simplifying your finances and relieving stress from tracking several debt payments with varying due dates.

#2 Lower Interest Rates

Unfortunately, when you enroll in a debt management plan, creditors do not stop charging interest. However, they might be willing to reduce your interest rate so you can make payments more efficiently while improving your financial health.

#3 Reduced Volume of Collection Calls

When you’re in debt and behind on payments, creditors hound you day in and day out. This is understandably anxiety-inducing as it’s a daily reminder of your finances being out of control.

While a debt management plan won’t necessarily stop all collection calls, you can answer these calls and tell the agent to contact the credit counseling organization you’re working with.

#4 Waive Fees

The credit counselor you work with might be able to waive future fees along the journey of your payment plan. Waiving fees helps you save money and puts you in a better financial position sooner.

#5 Debt-Free Life

Perhaps the most significant benefit is paying off your debts within the allotted timeline. Most debt repayment plans take 30 to 60 months to complete. You can find freedom from accumulated debt if you make steady payments during those months.

A Word of Caution

Debt management plans aren’t get-out-of-jail-free cards. You must follow the plan exactly; otherwise, you could face worse penalties.

These are a few of the potential cons of a debt management plan:

The plans are usually designed for credit cards, so medical debt, student loans, and tax obligations aren’t included
During the three to five years that you are enrolled in the plan, you cannot use credit cards or take out new lines of credit
Missing a payment can completely derail the plan and result in losing the temporary interest cuts

While debt management plans can be helpful for many people in certain situations, they certainly aren’t for everyone.

Are You a Candidate for a Debt Management Plan?

How do you know whether a debt management plan is right for you? Debt management plans aren’t cookie-cutter options that work for everyone, as indicated by the following statistics:

Only 10% to 20% of those interested choose debt management plans
Of the people who do, only 50% to 70% complete the plans

A debt management plan might be worth considering if:

You have credit card debt or other unsecured debt that amounts to 15% to 39% of your yearly income
You have a steady income and can pay off your debts within the allotted five years with a lower interest rate
You can get by for the next five years without opening any new lines of credit

If you meet the above criteria, you might want to consider a debt management plan.

Debt Management Plan Alternatives

If you do not feel that a debt management plan is right for you, there are alternatives, such as:

DIY strategies like the debt snowball method
Debt consolidation loans, which refinance your debts into a single loan with a lower interest rate
Bankruptcy, if your debt is greater than 40% of your yearly income and you cannot pay it off within the next five years

Whatever method you’re considering, it’s well worth it to sit down with a financial professional to discuss your situation and explore your options.

Get Debt Help from Good Life

So, is a debt management plan right for you? We hope this blog helped answer that question! Our team of financial advisors at Good Life will analyze your debt situation and advise you on strategies you can use to get out of debt and get your financial health back on track.

Contact us today to book a free discovery call! Thank you for visiting our blog, and we hope to work with you soon!

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The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.